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Home-Delivery Supporters Take New York State to Federal Court

Dana Nigro
Posted: February 3, 2000

Seeking to give U.S. wine lovers the right to purchase their favorite bottlings over the Internet or across state lines, several consumers and winery owners have taken the fight over home-delivery laws to New York -- the second-largest wine market in the United States.

Today, the group filed a federal lawsuit asking to repeal state laws that ban out-of-state wineries from shipping their wines directly to New York adult consumers and from directly advertising their products to residents of the state.

The Washington, D.C.-based Institute for Justice, a public-interest law firm, filed the suit in U.S. District Court for the Southern District of New York on behalf of three New York consumers and two small out-of-state wineries. The suit is also being supported by the Coalition for Free Trade, a nonprofit organization devoted to increasing adult access to fine wines by providing research and other support for consumer lawsuits.

Currently, 30 states prohibit interstate direct shipments of alcoholic beverages; in seven of those states, violation of the law is a felony. Many of these states also prevent out-of-state wineries from directly advertising their product to consumers. Instead, most sales must go through the "three-tier system" -- from the producer to a licensed wholesaler to the retailers who sell to the consumers.

In recent years, many wholesalers -- whose businesses may be threatened by direct sales via the Internet, phone or mail -- have been lobbying in the state and federal legislatures for bans on direct shipments. Many states have passed such restrictions, citing concerns such as tax collection and the availability of alcohol to minors.

"This is the oldest gambit of American politics: economic protectionsim," said Clint Bolick, litigation director for the Institute of Justice. "These laws are designed to preserve the monopoly of liquor wholesalers who control all out-of-state wine in New York."

The complaint brings together three New York residents -- Patrick Fitzgerald, Cortes DeRussy and Robin Brooks -- who want to be able to buy wines they can't find at local retailers. They are joined by the owners of two small wineries -- Juanita Swedenburg of Swedenburg Winery in Virginia and David Lucas of Lucas Winery in California -- who want to be able to market and sell their products to New York customers.

"For the vast majority of small wineries, direct sales are the only way to do business," said Swedenburg. "These direct-shipment prohibitions are hurting small family-run wineries and may drive them out of business."

Similar consumer lawsuits have been filed in Indiana, Texas, Virginia and Florida . All of these complaints argue that direct-shipping bans violate the right to free trade under the interstate commerce clause of the U.S. Constitution, but the New York case is the first to bring up the issue of free speech.

"The Internet opened up a fantastic new way for boutique wineries to find new customers," said Bolick. "But under New York's laws, every winery or retailer who advertises on the Internet is an outlaw."

New York state law makes it a misdemeanor for out-of-state wineries and retailers to ship alcoholic beverages to the homes of New York consumers. Out-of-state business also cannot send advertisements -- including brochures, order forms and publications of any kind -- to New York residents to solicit any orders. (The Internet is not specifically mentioned in New York's laws.) However, New York state wineries and retailers are allowed to deliver directly to in-state consumers and may also send advertisements to them.

The suit argues that New York's direct-shipment ban discriminates on its face against out-of-state wineries, violating the interstate commerce clause. The Institute for Justice also claims that the laws impair winery owners' freedom to pursue a livelihood, as protected under the privileges and immunities clause of the U.S. Constitution, which states, "The citizens of each state shall be entitled to all privileges and immunities of citizens in the several states."

Finally, the suit makes a case that New York's ban on wine advertisements violates the freedom of speech guaranteed by the First Amendment. The complaint states that the ban prohibits, "in the most sweeping terms, truthful information and advertising about wine, including but not limited to commercial speech" and "exerts a chilling effect on protected speech and on its face forbids certain protected speech. No adequate justification exists for this censorship of speech."

The Wine & Spirits Wholesalers of America (WSWA), an association that has lobbied for restrictions on interstate direct shipping, countered the news of the lawsuit with the argument that controls are needed to provide societal safeguards against illegal alcohol sales.

"Underage purchases of alcohol beverages are difficult enough to stop, even with today's restrictions that require the in-state licensing of retailers and face-to-face transactions," responded Juanita Duggan, CEO of WSWA. "These plaintiffs want to gut these laws so that they can legitimize the growing black market in illegal alcohol sales, sell direct to consumers, pocket outrageous profits and avoid state taxes."

For an overview of the direct shipping issue, read The Wine Wars.

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